Building the Mother of All Tops


So much for seasonality. Bears were counting on the cyclical fury of autumn to rebuke revelers, but instead it is they who got rebuked, and badly. The stock market’s strong rally during the traditionally difficult month of October has left many wondering what it will take to pop the bubble. It is almost invariably a combination of factors that virtually no one has precisely foreseen. But this time, predicting the onset of the bear’s inevitable arrival would seem to require a bigger leap of imagination than in the past. For how does a bull market end when it is supported by seemingly unlimited quantities of money ginned up by the central bank? Deliberately tightening credit cannot be the answer, since the Fed understands that this would not only reverse the bull market precipitously, it would also doom pension funds, the Baby Boomers’ retirement plans, artificially high real estate prices and a consumer economy already ravaged by the pandemic. The eventual outcome would be a global economy plunged into deepest depression.  This is coming anyway, but don’t expect the Fed to set itself up as the obvious cause.

And so the game goes on. The money from trees finds its way into the stock market in numerous ways, one of them being corporate buybacks. According to a recent article at Zerohedge, fully 40% of the market’s rise can be attributed to this source. Some of the companies that borrow for buybacks are sitting on surplus cash of their own amounting to billions or even tens of billions of dollars. Why use real money, they have concluded, when they can borrow it at near-zero rates by issuing bonds to yield-starved investors?  And so they continue to plow borrowed money into their own shares, driving the shares into outer space without producing a dime’s worth of actual economic growth. Everyone appears to win in this shell game and it continues at a crazy pace, even if all the players understand full well that a rally attributable solely to inflation is ultimately unsustainable.

A Win/Win Disaster

The win-win aspect of this epic Ponzi has put up some very impressive numbers. Last week’s blowoff in Tesla made Elon Musk the world’s richest man, worth an estimated $300 billion. Tesla shares are so pumped that their value has exceeded the combined value of 14 other global automakers. Bill Gates cannot be far behind, since Microsoft’s steep climb pushed the company once again to the top of the capitalization heap, just ahead of an Apple Inc. valued at $2.5 trillion. No one believes this craziness can continue indefinitely. But when it finally ends, as it must, the consequences are almost too dire to imagine. That is why the stock market is taking so long to build a top: The coming bear market will have tragic consequences for our way of life. We are about to discover how little of value the ‘Information Age’ produces, and how illusory its wealth. The Great Depression brought severe hardship to many Americans, but the coming one will be worse because the fall will come from a pinnacle of material affluence paid for with credit.

  • Keith Leverenz November 5, 2021, 4:11 pm

    For the less savvy, the digitally facilitated immediate feedback of account values instantly rising based on the price of the last trade has hypnotized people into believing they have “made” money, that the wealth is actually there in their account. Even if they’re more sophisticated, they believe that stop loss orders will protect their profits, having never been in a market where prices go limit down without any trades going off, sometimes day after day. I have not seen any commentators tie this insanity to its source, Ben Bernanke, who knowingly set all this in motion by explicitly setting out to use the “(phantom) wealth effect’ as a monetary policy transmission mechanism. God help us when the unwind happens.


    Well observed and bluntly to-the-point, Keith. Thanks for your insightful comments. RA

  • Al Sanchez November 4, 2021, 11:12 am

    can you spell FUBAR?

    this is a Wile E. Coyote moment.

    the poor bastard has speed of the cliff, but has not realized that there is nothing but a chasm below his furry
    little footsie’s.

    beyond that, not much to add.

    just that the pain is gonna be biblical.

  • ursel doran November 4, 2021, 10:43 am

    All the kiddie speculators shall learn what the reality of “Mean Reversion” means.
    Never forget that the ONLY mandate for the FED is to Insure the Profits of the member banks!
    Their advertised mandates are a joke.
    Sandy Weill stated on camera that he spent $200 Million over two years to get Glass Steagall repealed,
    what we have now is the result from the FED’s Zero interest rates and flooding the market with computer generated “money” for the Banksters and Hedgies to run the electronic casino with their robots.
    Party on Dudes.

  • Charles Edward Lanter November 3, 2021, 8:47 am

    China will end our bull market by forcing the yield curve to be market based instead of central bank based. Step 1 Roll out their digital currency. Step 2 Back the currency with gold Step 3 End Bitcoin and other cryptocurrencies world wide ( world’s most powerful quantum computer with 10.000 hackers) Conclusion: Moral hazard is re-established.
    Until a market based yield curve is re-established the speculation will only get worse.


    Interesting theory, Charles, thanks. If they do establish a peg to gold, though, they’ll need to be careful about hardening their currency too much, since it’s going to be difficult enough to keep exports alive during the coming global depression. RA

  • Richard Charles November 1, 2021, 12:07 pm

    Good November First all:

    ‘We are about to discover how little of value the ‘Information Age’ produces, and how illusory its wealth’


    Just over this last Year ~

    Uranium URNM +241%
    Coal ARCH +163%
    Oil XOP +160%
    Ags MOS +131%
    Copper TECK +111%
    All Metals XME +81%
    S&P 500 Equal Weight: +43%**
    Apple AAPL +30%
    Facebook FB +14%
    Amazon AMZN +6%
    Bonds TLT -9%

    10 to 20 different asset managers across the industry are liquidating or under review for liquidation due to interest rate derivatives, a bloodbath.

    VIX (equity vol) mis-priced relative to what is happening.

    H/T Larry [email protected]

    And if that not enough thought for food:

  • Pan October 31, 2021, 11:46 pm

    Always love reading your commentaries Rick.


    Thanks, Pan. They used to attract 100 or more comments per day, as you might recall, but perhaps the audience has succumbed to blog fatigue. RA